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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 5, 2015
CareTrust REIT, Inc.
(Exact name of registrant as specified in its charter)
Maryland
001-36181
46-3999490
(State or other jurisdiction
of incorporation)
(Commission
File Number)
(IRS Employer
Identification No.)
Registrant’s telephone number, including area code: (949) 542-3130
905 Calle Amanecer, Suite 300,
San Clemente, CA
92673
(Address of principal executive offices)
(Zip Code)
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
 Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial
Condition.
On November 5, 2015, CareTrust REIT, Inc. issued a press release announcing its financial results for the quarter ended
September 30, 2015. A copy of the press release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.
Item 9.01. Financial Statements and
Exhibits.
(d) Exhibits.
The following exhibits are furnished with this report:
Exhibit No.
Description
99.1
Press Release, dated November 5, 2015.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Date: November 5, 2015
CARETRUST REIT, INC.
By:
/s/ Gregory K. Stapley
Gregory K. Stapley
President, Chairman and Chief Executive Officer
EXHIBIT INDEX
Exhibit No.
Description
99.1
Press Release, dated November 5, 2015.
Exhibit 99.1
CareTrust REIT, Inc. Announces Third Quarter 2015 Operating Results
Conference Call and Webcast Scheduled for Friday, November 6, 2015 at 10:00 am PT
San Clemente, CA – (Globe Newswire – November 5, 2015) – CareTrust REIT, Inc. (NASDAQ:CTRE) today reported
operating results for the third quarter of 2015, as well as other recent events. Highlights included:
▪ During and after the quarter, CareTrust deployed approximately $200 million, at a blended going-in cash yield of
9.6%, to acquire a 14-facility skilled nursing and assisted living portfolio, plus an additional skilled nursing
facility and two assisted living facilities, initiating three new net-lease tenant relationships in the process and also
building upon an existing tenant relationship;
▪
Normalized FFO was $7.7 million, a quarter over quarter increase of 5.1%, with normalized FAD up 10.4% over
the prior year quarter to $8.7 million;
▪
During the quarter, CareTrust replaced its secured $150 million revolving credit facility with a new, four-year
$300 million unsecured revolving credit facility that includes an accordion feature which allows CareTrust to
increase the line’s borrowing availability to $500 million;
▪
CareTrust raised approximately $163 million in its first follow-on offering, the proceeds of which helped finance
the 14-property Liberty acquisition and create significant borrowing capacity under the new unsecured credit
facility.
Approximately $200 Million in New Investments Completed
Commenting on the pace of investment activity during and after the quarter, Greg Stapley, CareTrust’s Chairman and
Chief Executive Officer, remarked, “Our investments in Q3 demonstrate our ability to consistently add small-to-medium
sized acquisitions to our portfolio, with both our existing tenant base and new tenant relationships.” He noted that three of
the acquisitions were placed with new tenants, and one was a tack-on to an existing master lease. He highlighted the value
of the company’s relationship-driven investing approach, adding that the company is currently pursuing several additional
opportunities with existing tenants, and that several of the opportunities were sourced by the tenants themselves.
“In addition,” Mr. Stapley continued, “the October 1st Liberty acquisition demonstrates our team’s ability to identify,
underwrite, finance and close larger transactions, if and when opportunities that fit our underwriting criteria arise." He
reemphasized that, while acquiring individual properties and smaller portfolios which tend to generate higher yields
remains the company’s primary focus, CareTrust is “willing to consider larger portfolio acquisitions like Liberty when
they meet our investment parameters.” The
company reported just under $200 million in capital deployment in the quarter and since, at a weighted average going-in
cash yield of approximately 9.6%.
Summarizing the company’s recent advances, Mr. Stapley added, “We are running ahead of plan in nearly every key
metric we track. FFO and FAD grew, we got our first follow-on successfully behind us in a difficult market, and we
significantly improved our balance sheet, liquidity and credit profile.” Including the October 1st Liberty investment, he
explained that the company’s debt-to-run-rate EBITDA ratio declined from 6.8x to 5.2x, its fixed charge coverage ratio
increased from 2.6x to 3.3x, and its single-tenant run-rate revenue concentration with its former parent fell from 84% to
67%. He also noted that the company has over $150 million of liquidity under the new unsecured credit facility, with each
new investment after Liberty adding even more liquidity. “We believe that all of this sets the stage for an exciting 2016,”
he concluded.
Financial Results for the Quarter Ended September 30, 2015
Discussing financial results for the quarter, Chief Financial Officer Bill Wagner reported that the Company generated
normalized FFO of $7.7 million or $0.20 per diluted common share, and normalized FAD of $8.7 million or $0.22 per
diluted common share.
Addressing significant nonrecurring expenses in the quarter, Mr. Wagner explained that net income, FFO and FAD were
impacted by a $1.2 million write-off of deferred financing fees associated with the replacement of the $150 million
secured term line. “However,” he added, “we are happy to report the procurement of a new $300 million unsecured line
that will help us accelerate our growth, with lower borrowing costs and far less transactional friction going forward.” He
also indicated that results were impacted by an increased accrual for incentive compensation due to the company hitting
key incentive targets for the year. He noted that these items were accounted for in developing the company’s updated
guidance for 2015, which we announced in early September of this year.
Mr. Wagner also discussed the company’s August follow-on offering, which raised $163 million and brought a good
group of new institutional investors into the stock. He noted that the new equity issuance had resulted in an increase in the
company’s diluted weighted average share count for the quarter to approximately 39.3 million shares, temporarily
impacting per-share results. However, he added, the capital raised was fully deployed immediately after quarter-end and is
now generating rental income at a 9.65% going-in cash yield. “The quarter’s per-share results will appear a bit choppy due
to the unavoidable gap in timing between the capital raise and its deployment, but that was expected and we remain on
track to meet our previously-issued earnings guidance,” he said.
Addressing prior period year-to-date comparisons, Mr. Wagner cautioned that CareTrust’s revenue stream, expense
structure and other factors changed markedly when the company was spun off from its former parent in June 2014,
making prior-period year-to-date comparisons difficult at best. He also pointed out that, in making any per-share
comparisons for the quarter, the share counts in the third quarter of 2014 did not take into account the dilutive effects of
the then-pending purging distribution, which was made in mid-December of that year.
Guidance Reaffirmed
Mr. Wagner reaffirmed the updated 2015 and 2016 guidance which was published by the company in early September.
The company had projected 2015 normalized FFO per share of approximately $0.92, and normalized FAD per share of
approximately $1.02, all subject to the assumptions and qualifications we previously articulated in connection with that
guidance. “Both 2015 and 2016 remain on track,” he
said, “and we expect to be able to provide a little more color on 2016 in connection with the company’s fourth quarter
2015 earnings release,” he added.
Dividend Declared
During the quarter, the company declared a regular quarterly dividend of $0.16 per common share to shareholders of
record as of September 30, 2015. “On an annualized basis, this dividend represents a payout ratio of approximately 63%
based on the $1.02 normalized FAD guidance for 2015,“ said Mr. Wagner. “At this level,” he added, “our dividend not
only offers a solid return to shareholders, but is among the best-protected of all our industry peers.” Pointing to the
average initial yield of 9.6% on capital deployed during the quarter, Mr. Wagner also noted that the FAD retained is being
put to work to create greater shareholder value over time.
Conference Call
An earnings webcast will be held on Friday, November 6, 2015, at 1:00 p.m. Eastern Time, during which CareTrust’s
management will discuss the Company’s third quarter 2015 results, recent developments and other matters affecting the
company’s business and prospects. To listen to the webcast, or to view any financial or other statistical information
required by SEC Regulation G, please visit the Investors section of the CareTrust website at
http://investor.caretrustreit.com/ . The webcast will be recorded, and will be available for replay via the website for one
year following the event.
About CareTrustTM
CareTrust REIT, Inc. is a self-administered, publicly-traded real estate investment trust that is engaged in the ownership,
acquisition and leasing of seniors housing and healthcare-related properties. With 119 net-leased healthcare properties and
three operated seniors housing properties in fifteen states, CareTrust is pursuing opportunities nationwide to acquire
additional properties that will be leased to a diverse group of local, regional and national seniors housing operators,
healthcare services providers, and other healthcare-related businesses. More information about CareTrust is available
at www.caretrustreit.com.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
This press release contains, and the related conference call and webcast will include, forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include all
statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but
not limited to, statements regarding future financing plans, business strategies, growth prospects and operating and
financial performance; expectations regarding the making of distributions and the payment of dividends; and compliance
with and changes in governmental regulations.
Words such as “anticipate(s),” “expect(s),” “intend(s),” “plan(s),” “believe(s),” “may,” “will,” “would,” “could,”
“should,” “seek(s)” and similar expressions, or the negative of these terms, are intended to identify such forward-looking
statements. These statements are based on Management’s current expectations and beliefs, and are subject to a number of
risks and uncertainties that could lead to actual results differing materially from those projected, forecasted or expected.
Although Management believes that the assumptions underlying the forward-looking statements are reasonable, they are
not guarantees and the Company can give no assurance that their expectations will be attained. Factors which could have
a material adverse effect on the Company’s operations and future prospects or which could cause actual results to differ
materially from expectations include, but are not limited to: (i) the
ability to achieve some or all of the expected benefits from the completed spin-off and to successfully conduct the
Company’s business following the spin-off; (ii) the ability and willingness of Ensign to meet and/or perform its
obligations under the contractual arrangements that it entered into with the Company in connection with the spin-off,
including the Ensign Master Leases, and any of its obligations to indemnify, defend and hold the Company harmless from
and against various claims, litigation and liabilities; (iii) the ability and willingness of the Company’s tenants to (a)
comply with laws, rules and regulations in the operation of the properties the Company leases to them, and (b) renew
their leases with the Company upon expiration, or in the alternative, (c) the Company’s ability to reposition and re-let the
Company’s properties on the same or better terms in the event of nonrenewal or replacement of an existing tenant and
any obligations, including indemnification obligations, that the Company may incur in replacing an existing tenant;
(iv) the availability of, and the ability to identify and acquire, suitable acquisition opportunities and lease the same to
reliable tenants on accretive terms; (v) the ability to generate sufficient cash flows to service the Company’s outstanding
indebtedness; (vi) access to debt and equity capital markets; (vii) fluctuating interest rates; (viii) the ability to retain and
properly incentivize key management personnel; (ix) the ability to qualify or maintain the Company’s status as a real
estate investment trust (“REIT”); (x) changes in the U.S. tax laws and other state, federal or local laws, whether or not
specific to REITs; (xi) other risks inherent in the real estate business, including potential liability relating to
environmental matters and illiquidity of real estate investments; and (xii) any additional factors included in this report
and any included in the section entitled “Risk Factors” in Item 1A of Part II of the Company’s most recently filed Form
10-Q.
Forward-looking statements speak only as of the date made, whether in this press release or the related conference call
and webcast. Except in the normal course of the Company’s public disclosure obligations, the Company expressly
disclaims any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any
change in the Company’s expectations or any change in events, conditions or circumstances on which any statement is
based.
Contact Information
CareTrust REIT, Inc. (949) 542-3130, [email protected]
SOURCE: CareTrust REIT, Inc.
CARETRUST REIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
September 30,
2015
December 31,
2014
Assets
Real estate investments, net
$
Other real estate investments
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other assets
Deferred financing costs, net
Total assets
651,554
$
436,215
8,229
7,532
12,098
25,320
2,961
2,291
337
809
9,793
10,405
$
684,972
$
482,572
$
260,000
$
260,000
Liabilities and Equity
Senior unsecured notes payable
Unsecured revolving credit facility
45,000
-
Mortgage notes payable
95,696
98,205
Accounts payable and accrued liabilities
12,010
6,959
7,704
3,946
420,410
369,110
477
313
Dividends payable
Total liabilities
Equity:
Common stock
Additional paid-in capital
Cumulative distributions in excess of earnings
Total equity
Total liabilities and equity
$
409,790
(145,705)
246,041
(132,892)
267,562
113,462
684,972
$
482,572
CARETRUST REIT, INC.
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended September 30,
2015
2014
Nine Months Ended September 30,
2015
2014
Revenues:
Rental income
$
Tenant reimbursements
15,778
$
14,000
$
45,869
$
37,228
1,320
1,228
3,866
3,726
Independent living facilities
626
646
1,868
1,856
Interest and other income
261
10
716
10
17,985
15,884
52,319
42,820
Depreciation and amortization
5,815
5,362
17,093
17,631
Interest expense
7,221
5,943
19,111
15,722
-
-
-
4,067
1,320
1,228
3,866
3,726
610
586
1,778
1,684
2,292
798
5,440
8,710
17,258
13,917
47,288
51,540
727
1,967
5,031
(8,720)
-
-
-
Total revenues
Expenses:
Loss on extinguishment of debt
Property taxes
Independent living facilities
General and administrative
Total expenses
Income (loss) before provision for income taxes
Provision for income taxes
53
$
727
$
1,967
$
5,031
$
(8,773)
Basic
$
0.02
$
0.09
$
0.14
$
(0.39)
Diluted
$
0.02
$
0.09
$
0.14
$
(0.39)
Net income (loss)
Earnings (loss) per common share:
Weighted average shares outstanding:
Basic
39,125
22,255
33,916
22,238
Diluted
39,125
22,436
33,916
22,238
0.16
-
0.48
-
Dividends declared per common share
$
$
CARETRUST REIT, INC.
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September 30,
2015
2014
Cash flows from operating activities:
Net income (loss)
$
5,031
$
(8,773)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
17,093
17,631
Amortization of deferred financing costs and debt discount
1,649
1,050
Write-off of deferred financing costs
1,208
—
Amortization of stock-based compensation
1,095
—
Noncash interest income adjustments
(697)
—
Loss on extinguishment of debt
—
1,998
Loss on settlement of interest rate swap
Change in operating assets and liabilities:
Accounts receivable
—
1,661
Accounts receivable due from related party
Prepaid expenses and other assets
Interest rate swap
Accounts payable and accrued liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Acquisition of real estate
Improvements to real estate
Purchases of equipment, furniture and fixtures
Net proceeds from the sale of vacant land
Net cash used in investing activities
Cash flows from financing activities:
(2,945)
2,275
(90)
—
(10)
(2,876)
387
(1,661)
4,416
7,944
29,035
17,351
(231,501)
(143)
(256)
—
(254)
(19,079)
30
(231,870)
—
(19,333)
163,466
—
—
260,000
Borrowings under unsecured credit facility
45,000
—
Borrowings under senior secured revolving credit facility
35,000
10,000
—
50,676
Proceeds from the issuance of common stock, net
Proceeds from the issuance of senior unsecured notes payable
Proceeds from the issuance of mortgage notes payable
Repayments of borrowings under senior secured revolving credit facility
Payments on the mortgage notes payable
Payments on senior secured term loan
Payments of deferred financing costs
Net-settle adjustment on restricted stock
(35,000)
(2,509)
(88,701)
(67,493)
—
(2,113)
(65,624)
(13,282)
(145)
—
Dividends paid on common stock
—
(14,086)
—
4,356
Net cash provided by financing activities
189,613
89,932
Net (decrease) increase in cash and cash equivalents
(13,222)
87,950
Net contribution from Ensign
Cash and cash equivalents beginning of period
Cash and cash equivalents end of period
25,320
$
12,098
895
$
88,845
CARETRUST REIT, INC.
DEBT SUMMARY
(dollars in thousands)
(unaudited)
Debt
Collateral
Interest Rate/
Spread
Maturity
Date
September 30, 2015
Balance
Fixed Rate Debt
Senior unsecured notes payable
GECC mortgage notes payable (1)
Unsecured
5.875%
2021
10 properties
7.252%
2017
$
260,000
46,526
306,526
Floating Rate Debt
GECC mortgage notes payable (1)
Unsecured revolving credit facility (2)
10 properties
L + 3.35%
2017
49,170
Unsecured
L + 1.75%-2.40%
2019
45,000
94,170
Total Debt
$
400,696
Debt Statistics
% Fixed Rate Debt
76.5%
% Floating Rate Debt
23.5%
Total
100.0%
Weighted Average Interest Rates:
Fixed
6.1%
Floating
3.1%
Blended
5.4%
(1) The fixed rate portion of the GECC mortgage notes payable converts to the floating rate in June 2016. The floating rate portion is
subject to a Libor floor of 0.50%. The note has two, 12 month extension options.
(2) Gross availability under the unsecured revolving credit facility totaled approximately $201 million at September 30, 2015. Funds
can also be borrowed at the Base Rate (as defined) plus 0.75% to 1.40%.
CARETRUST REIT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
One Month
Ended
Quarter
Ended
September 30,
2014
June 30, 2014
Quarter
Ended
December 31,
2014
Quarter
Ended
Quarter
Ended
Quarter
Ended
September 30,
2015
March 31, 2015 June 30, 2015
Revenues:
Rental income
Tenant
reimbursements
Independent living
facilities
$
4,667
$
14,000
$
14,139
$
14,842
$
15,249
$
15,778
396
1,228
1,230
1,258
1,288
1,320
211
646
663
635
607
626
-
10
45
223
232
261
Total revenues
5,274
15,884
16,077
16,958
17,376
17,985
Expenses:
Depreciation and
amortization
1,794
5,362
5,369
5,599
5,679
5,815
Interest expense
1,967
5,943
5,900
5,901
5,989
7,221
396
1,228
1,230
1,258
1,288
1,320
-
-
47
-
-
-
161
586
559
602
566
610
500
798
2,342
1,560
1,588
2,292
4,818
13,917
15,447
14,920
15,110
17,258
Interest and other
income
Property taxes
Acquisition costs
Independent living
facilities
General and
administrative
Total expenses
Net income
$
456
$
1,967
$
630
$
2,038
$
2,266
$
727
Diluted earnings per
share
$
0.02
$
0.09
$
0.03
$
0.06
$
0.07
$
0.02
Diluted weighted
average shares
outstanding
22,436
22,436
24,586
31,257
31,278
39,125
CARETRUST REIT, INC.
RECONCILIATIONS OF NET INCOME TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share data)
(unaudited)
One Month
Ended
Quarter
Ended
September 30,
2014
June 30, 2014
Net income
Depreciation and
amortization
$
456
$
1,967
Quarter
Ended
December 31,
2014
$
630
Quarter
Ended
Quarter
Ended
Quarter
Ended
September 30,
2015
March 31, 2015 June 30, 2015
$
2,038
$
2,266
$
727
1,794
5,362
5,369
5,599
5,679
5,815
Interest expense
1,967
5,943
5,900
5,901
5,989
7,221
Amortization of
stock-based
compensation
-
-
154
366
294
435
4,217
13,272
12,053
13,904
14,228
14,198
-
-
47
-
-
-
254
30
168
—
—
—
-
-
-
-
-
1,208
EBITDA
Acquisition costs
Costs associated with
the Spin-Off
Write-off of deferred
financing fees
Adjusted EBITDA
$
4,471
$
13,302
$
12,268
$
13,904
$
14,228
$
15,406
Net income
$
456
$
1,967
$
630
$
2,038
$
2,266
$
727
Real estate related
depreciation and
amortization
1,794
5,362
5,365
5,593
5,668
5,796
Funds from
Operations (FFO)
2,250
7,329
5,995
7,631
7,934
6,523
-
-
47
-
-
-
254
30
168
-
-
-
-
-
-
-
-
1,208
Acquisition costs
Costs associated with
the Spin-Off
Write-off of deferred
financing fees
Normalized FFO
$
2,504
$
7,359
$
6,210
$
7,631
$
7,934
$
7,731
456
1,967
630
2,038
2,266
727
Real estate related
depreciation and
amortization
1,794
5,362
5,365
5,593
5,668
5,796
Amortization of
deferred financing
costs
175
533
553
547
555
547
Net income
Amortization of
stock-based
compensation
-
-
154
366
294
435
Funds Available for
Distribution (FAD)
Acquisition costs
Costs associated with the
Spin-Off
Write-off of deferred
financing fees
Normalized FAD
2,425
7,862
6,702
8,544
8,783
7,505
-
-
47
-
-
-
254
30
168
-
-
-
-
-
-
-
-
1,208
2,679
7,892
6,917
8,544
8,783
8,713
FFO per share
$
0.10 $
0.33 $
0.24 $
0.24 $
0.25 $
0.17
Normalized FAD per
share
$
0.11 $
0.33 $
0.25 $
0.24 $
0.25 $
0.20
FAD per share
$
0.11 $
0.35 $
0.27 $
0.27 $
0.28 $
0.19
Normalized FAD per
share
$
0.12 $
0.35 $
0.28 $
0.27 $
0.28 $
0.22
Diluted weighted average
shares outstanding (1)
22,436
22,436
24,586
31,446
31,462
(1) For the quarter ended September 30, 2015, the diluted weighted average shares includes unvested
restricted stock awards as the effect is more dilutive.
39,271
Discussion of Non-GAAP Financial Measures
EBITDA represents net income before interest expense, amortization of deferred financing costs and stock-based
compensation, and depreciation and amortization. Adjusted EBITDA represents EBITDA as further adjusted to eliminate
the impact of certain items that the Company does not consider indicative of core operating performance, such as costs
associated with the spin-off, impairments, and gains or losses on the sale of real estate. EBITDA and Adjusted EBITDA
do not represent cash flows from operations or net income as defined by GAAP and should not be considered an
alternative to those measures in evaluating the Company’s liquidity or operating performance. EBITDA and Adjusted
EBITDA do not purport to be indicative of cash available to fund future cash requirements, including the Company’s
ability to fund capital expenditures or make payments on its indebtedness. Further, the Company’s computation of
EBITDA and Adjusted EBITDA may not be comparable to EBITDA and Adjusted EBITDA reported by other REITs.
Funds from Operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”),
and Funds Available for Distribution (“FAD”) are important non-GAAP supplemental measures of operating performance
for a REIT. Because the historical cost accounting convention used for real estate assets requires straight-line depreciation
except on land, such accounting presentation implies that the value of real estate assets diminishes predictably over time.
However, since real estate values have historically risen or fallen with market and other conditions, presentations of
operating results for a REIT that uses historical cost accounting for depreciation could be less informative. Thus, NAREIT
created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and
amortization, among other items, from net income, as defined by GAAP.
FFO is defined by NAREIT as net income computed in accordance with GAAP, excluding gains or losses from real estate
dispositions, real estate depreciation and amortization and impairment charges, and adjustments for unconsolidated
partnerships and joint ventures. The Company computes FFO in accordance with NAREIT’s definition.
FAD is defined as FFO excluding non-cash expenses, such as stock-based compensation expense, amortization of
deferred financing costs and the effects of straight-line rent. FAD is useful in analyzing the portion of cash flow that is
available for distribution to shareholders. Investors, analysts and the Company utilize FAD as an indicator of common
dividend potential. The FAD payout ratio, which represents annual distributions to common shareholders expressed as a
percentage of FAD, facilitates the comparison of dividend coverage among REITs.
In addition, the Company reports normalized FFO and normalized FAD, which adjust FFO and FAD for certain revenue
and expense items that the Company does not believe are indicative of its ongoing operating results, such as costs
associated with the spin-off, impairments, gains or losses on the sale of real estate and other non-recurring expenses and
unanticipated charges. By excluding these items, investors, analysts and our management can compare normalized FFO
and normalized FAD between periods more consistently.
While FFO, normalized FFO, FAD and normalized FAD are relevant and widely-used measures of operating performance
among REITs, they do not represent cash flows from operations or net income as defined by GAAP and should not be
considered an alternative to those measures in evaluating the Company’s liquidity or operating performance. FFO,
normalized FFO, FAD and normalized FAD do not purport to be indicative of cash available to fund future cash
requirements. Further, the Company’s computation of FFO, normalized FFO, FAD and normalized FAD may not be
comparable to FFO,
normalized FFO, FAD and normalized FAD reported by other REITs that do not define FFO in accordance with the
current NAREIT definition or that interpret the current NAREIT definition or define FAD differently than the Company
does.
The Company believes that the use of EBITDA, Adjusted EBITDA, FFO, normalized FFO, FAD and normalized FAD,
combined with the required GAAP presentations, improves the understanding of operating results of REITs among
investors and makes comparisons of operating results among such companies more meaningful. The Company considers
EBITDA and Adjusted EBITDA useful in understanding the Company’s operating results independent of its capital
structure and indebtedness, thereby allowing for a more meaningful comparison of operating performance between
periods and against other REITs. Additionally, as a liquidity measure, the Company believes that EBITDA can help
investors analyze the Company’s ability to meet its interest payments on outstanding debt. The Company considers FFO,
normalized FFO, FAD and normalized FAD to be useful measures for reviewing comparative operating and financial
performance because, by excluding gains or losses from real estate dispositions, impairment charges and real estate
depreciation and amortization, and, for FAD and normalized FAD, by excluding non-cash expenses such as stock-based
compensation expense and amortization of deferred financing costs, FFO, normalized FFO, FAD and normalized FAD
can help investors compare the Company’s operating performance between periods and to other REITs.